Our ultimate guide to profitability modeling tools positions you to take advantage of the future, rather than being a victim of it.
With appropriate profitability modeling software, you will be able to create contingency plans for the worst cases while being prepared to capitalize on best-case outcomes should they occur.
This approach will make your small business thrive while other businesses are capsized by change. You’ll be able to confidently make business decisions that maximize profitability.
What is profitability modeling?
Profitability models, or profit models, are financial data-based predictions of business growth and profitability.
Profitability modeling takes important business drivers, cost centers, and profit centers into account, in addition to wider economic factors. Some of the common inputs include:
- Cost of goods sold
- Fixed and variable costs
- Interest rates
- Operating costs
- Other expenses
- Employee turnover
- …and much more
A good profitability model can help you make efficient financial forecasts and adapt to changing conditions. For instance, if you want to hire more crew members or you have to increase production costs, a solid profitability model helps you account for these variables and forecast your business’s profitability.
Common types of profit models
When creating a profit model, there are 3 different forecasting methods commonly employed. There’s a fourth (and better) approach, especially for small businesses.
3 approaches to profitability modeling
- A market trend analytic model considers the wider picture as a basis for analysis. Your model for profit could be based on data from competitors and the likelihood of certain trends impacting your sales. Examples of market trends could include cultural changes, shifts in customer outlook, or greater consumer emphasis on sustainability.
- Historical models look at past growth rates to predict future profits. You’ll need to take historical profit figures and consider changing market conditions as well as potential future expenses.
- Analytic profit models can be used by start-ups or in any situation where you don’t have relevant historical data on hand. For instance, you might be entering a completely new market or rebranding with a new product. Instead of using past sales figures, you should use comparable data from similar products and markets for your modeling.
The Profit Frog approach to profitability modeling
Profit Frog simplifies profitability modeling for small businesses. You don’t have an entire finance team, so you need this stuff to be simple—or else you’ll never do it.
With Profit Frog, you decide which factors YOU care about modeling. These can be market trends, current shifts, or potential scenarios that might unfold in the future. You then forecast how different hypotheticals will affect your profitability in an exercise known as scenario planning.
Top profitability modeling tools
When you choose the right profitability tools and software, you are investing in your company’s future. Let’s take a deep dive into the best profitability analysis tools on the market.
Human management software company Workday has released a financial modeling
tool that features an intuitive, foolproof dashboard. It is built for team collaboration in larger organizations, and allows team members to create plans, link plans, assign tasks, and participate with role-based access.
For the average small business, Workday’s platform is rather complex and feature-rich, making it daunting and with a much steeper learning curve.
Pricing: $45 to $62 per month per user. There is also an annual cost of approximately $275K, placing Workday out of the budget of the average small business.
Prophix is a financial modeling software integrated with Microsoft Office. It allows you to model numerous scenarios and generate forecasts for visibility into factors such as the following:
- Profit and loss (P&L)
- Cash flow
- COGS vs operating expenses
- Gross profit margin
- Operating margin
- …and many more
Just like Workday, Prophix is targeted to larger enterprises and may be overkill for small business owners.
Pricing: Prophix does not make their pricing known on their website, indicating that they may be more expensive than the average small business can afford.
Onplan is an FP&A software platform that has profitability modeling capabilities. With a handy customer portal and excellent UX, Onplan’s interface is top-notch.
Onplan is targeted toward professional service firms and other larger organizations, emphasizing features like permissions control, team collaboration, and stakeholder reporting. For the average Main Street entrepreneur needing an intuitive interface and simple workflow, Onplan is probably too feature-rich and complicated.
Pricing: Onplan subscriptions start at $12,500 per year for their most basic plan, and go up from there. While not as spendy as Workday, this is a significant investment for most small businesses.
Oracle BI is software that combines artificial intelligence and machine learning to support business predictions and decision-making. It pairs with other Oracle products to deliver calculations for sales, creating a better hiring plan, HR, supply chain, visual analytics, and more.
Oracle BI key features:
- Ad-hoc reporting with predictive and profit analysis
- Provides secure data warehousing to users
- Offers remote storage and server ability
- Resource management
Oracle BI offers three pricing tiers:
- Larger businesses: $500-$10,000 per month for the complete software package (business analytics, customer experience, fast data, social cloud solutions, multiple accounts).
- Medium-sized businesses: $50-500 per month for the software. The price will depend on individual business needs.
- Small businesses: $10-50 per month for single accounts.
Just like Onplan, Prophix, and Workday, Oracle BI is targeted toward enterprise customers who are prepared to invest significantly into implementation and learning.
IBM Cognos is a financial modeling tool that focuses on, collecting, and analyzing data. It provides automated data prep and exploration, user-generated reports, and data visualizations of current and projected business operations.
- Imports data from spreadsheets and CSV files
- Connects to local or remote databases for reporting
- AI features for data preparation
- Draft dynamic dashboards locally and remotely
Cognos is more of an overall business intelligence tool than a pure profit modeling solution, and is geared toward corporate clients.
Pricing: IBM Congos monthly substations start at $10 per user.
Jirav offers collaborative profitability planning functionality for teams. Users create driver-based profitability models for forecasts and predictions, as well as merge company-wide data.
Jirav key features:
- Cash flow projections
- Financial forecasting
- Accounting, payroll and general ledger integrations
- Workforce planning
Jirav offers three plans:
- Starter: $500 per month
- Pro: $1000 per month
- Enterprise: Contact the Jirav sales team for a quote
Forecast Pro is a financial modeling software that supports forecasting and budgeting. Included is a profitability modeling function.
Just like Jirav, Prophix, and Workday, Forecast Pro is targeted at larger organizations.
Forecast Pro has 3 pricing plans:
- Forecast Pro: $1,495 per user
- Forecast Pro Unlimited: $4995 per user
- Forecast Pro TRAC: $9995 per user
Profit Frog is the only profitability modeling solution specifically targeted to small businesses. We know that you don’t have time to master Excel—or software platforms that are nearly as complex as Microsoft Excel—so we’ve stripped our tool down to the essentials.
- Controlling expenses: we help you get a handle on your expenses so you can see which ones have the biggest impact on your profitability.
- Optimizing and modeling profitability: profit is the lifeblood of your company, and all of our forecasts are based on optimizing profit (net income) under different scenarios.
- Unlimited profitability modeling exercises and models to guide your business strategy.
Pricing: Profit Frog pricing is a sliding scale based on a company’s monthly revenue. For example:
- If your business’s monthly revenue is $14,000, Profit Frog charges $40 a month.
- If your business’s monthly revenue is $114,000, Profit Frog charges $160 a month.
- If your business’s monthly revenue is $500,000, Profit Frog charges $500 a month.
If you’re looking for easy profitability tools that allow you to dynamically plan for the future, you want Profit Frog. We have everything you need for modeling your small business, and nothing you don’t.
Profitability Modeling FAQ
What are the three 3 elements of the profitability analysis?
- Gross profit
- Operating profit
- Net profit
What are the KPIs of profitability?
Many profitability modeling solutions focus on revenue and gross profit. We focus on the two metrics that actually matter for most entrepreneurs: net profit and net profit margin.
Why do we focus on net profit (also referred to as net income)? Because a high-revenue, high-expense business may put less money in your pocket than a medium-revenue, low-expense business. You’re in business to take home money from your company; ergo, we focus on modeling net profit and helping you maximize it. Our entire business model is based on optimizing profitability for your small business.
With Profit Frog, all you need to do is plug in your numbers into an intuitive, guided process, and our profitability forecasting software will tell you your business profitability. It will also allow you to create different business models by adjusting variables so you can see how to optimize profitability in the best possible way.
What is a profitability modeling framework?
A profitability modeling framework is a tool or structure that gives form to your scenario planning exercises. A software solution can provide a framework, as can a conceptual process or set of steps. Any structure to follow can be considered a framework.
Profit Frog provides the framework you need for your scenario modeling activities—and it’s baked right into our software so you don’t even need to think about it.
What are Gantt charts?
The Gantt chart is a work chart that helps teams plan and work around deadlines. Many project management software solutions use some version of the Gantt chart. In business, this chart is mainly used by project managers and heads of departments.
What is an organizational chart?
An organizational chart, also known as an org chart, is a mind map of sorts that shows the internal structure of your business or organization. In this chart, different departments, such as the digital marketing department, the social media department, and the human resource hub, are represented by boxes or other shapes. An org chart is integral for your business process to run smoothly, as it shows how different employees and departments are connected.
What is a financial plan?
Financial planning and analysis is one of the most important parts of business intelligence. Financial planning is a complete evaluation of future financial states by using your business’s current variables to predict asset values, withdrawal plans as well as predict future income.
Most financial analysts will use profitability modeling to improve a company’s financial health.
Which is better spreadsheets vs Profit Frog?
For those who have a lot of skill, financial modeling spreadsheets such as Microsoft Excel, and Google Sheets, are a great way of keeping track and analyzing financial data.
But if you are an average Joe, Profit Frog can be one of the most important management tools in your business. We serve all different types of small businesses from medical facilities to real estate.
What is a cash flow statement?
In accounting, cash flow statements, also referred to as cash flows, are financial statements that show how changes on your income statements as well as on the balance sheet affect your business’s financing and investing activities.
What is a forecast analytic model?
A forecast analytic model is the most commonly used analytics model. Its main ability is considering multiple input parameters.
How to calculate employee utilization rate?
Employee utilization rate measures productivity and workload. It is calculated by dividing billable hours worked by the number of hours worked per day.
Is asset turnover an important metric?
Yes. Asset turnover is a metric that helps shareholders understand how effectively businesses are using their assets to generate sales. Asset turnover ratios are used to compare two businesses in the same group or sector.